Question

You are the manager of a grocery store, and you are considering offering babysitting services to your customers. You estimate that the licensing and set up costs will amount to $150,000 initially and that you will be spending about $60,000 annually to provide the service.
As a result of the service, you expect sales at the store, which is $5 million currently, to increase by 20%; your after-tax operating margin is 10%. If your cost of capital is 12% and you expect the store to remain open for 10 years, would you offer the service?